USDA cuts corn outlook as drought takes toll

JIM SUHR
AP Business WriterPublished: August 10, 2012 12:02PM

ST. LOUIS (AP) -- The government slashed its expectations for U.S. corn and soybean production for the second consecutive month Friday, predicting what could be the lowest average corn yield in more than 15 years as the worst drought in decades continued punishing key farm states.

Nonetheless, Agriculture Secretary Tom Vilsack, in a statement supplied exclusively to The Associated Press, insisted that U.S. farmers and ranchers remain resilient and that the country would continue to meet demand as the global leader in farm exports and food aid.

The U.S. Agriculture Department cut its projected U.S. corn production to 10.8 billion bushels, down 17 percent from its forecast last month of nearly 13 billion bushels and 13 percent lower than last year. That also would be the lowest production since 2006.

The USDA, in its monthly World Agricultural Supply and Demand Estimates report, now expects corn growers to average 123.4 bushels per acre, down 24 bushels from last year in what would be the lowest average yield in 17 years.

Soybean production is now forecast at 2.69 billion bushels, a 12 percent decline from last year and well off the 3.05 billion bushels the USDA had expected last month. Expected yields on average of 36.1 bushels per acre would be the lowest since 2003.

Friday's revised outlook comes months after corn farmers forecast a record year when they planted, sowing 96.4 million acres -- the most since 1937. But the USDA now forecasts the area to be harvested at 87.4 million acres.

On Thursday, the U.N. food agency drew a direct correlation between price hikes in basic food commodities and the months of parched conditions in farm states. The Rome-based Food and Agriculture Organization said in its monthly price report that its overall food price index climbed 6 percentage points in July, although it was well below the peak reached in February 2011. The FAO's index, considered a global benchmark used to track market volatility and price trends, measures the monthly price changes for a basket of food items including cereals, oils and fats, meat, dairy products and sugar.

Severe drought punishing the U.S.'s midsection has sent corn prices soaring, and expectations of worsened crop prospects in Russia because of dry weather sent world wheat prices up 19 percent, according to the FAO, which keeps close tabs on volatile global prices. Spikes in the prices of staple foods have led to riots in some countries in recent years.

But on Friday, Vilsack tried to tamp down such concerns.

"Americans shouldn't see immediate increases in food prices due to the drought," said Vilsack, as he visited drought-stricken Nebraska and with plans to be in Iowa next week. "What is important going forward is that we continue to do all we can to help the farmers, ranchers, small businesses and communities being impacted by this drought."

Rick Whitacre, a professor of agricultural economics at Illinois State University, said consumers may see modest increases in prices in grocery stores due to tightened corn supplies because the grain is so ubiquitous, found in everything from cosmetics to cereal, soda, cake mixes and candy bars. But he believes the bigger fallout will come in 4 to 6 percent price increases for beef and pork, with many ranchers having sold off their livestock as feed costs rise and the drought burned up their pasturelands.

"You're going to see the ripple of this go out for quite a distance," Whitacre said. "We may see some upward pressure (on prices), especially in things like vegetable oil and a lot of our food products," but that should be manageable.

The U.S. leads the world in exporting corn, soybeans and wheat, and the surging prices are expected to be felt across the international marketplace, hurting poor food-importing countries, said a study by British charity Oxfam issued on the eve of the U.N. report.

Vilsack said he has pressed Congress to pass a comprehensive, multi-year farm bill "that gives farmers and ranchers more certainty in this tough time, while giving USDA tools to help those producers affected by weather-related events beyond their control."

The USDA foreshadowed the newly lowered yield projections, noting earlier this week that exactly half of the nation's corn crop was rated poor to very poor, up 2 percentage points from the previous week and creeping closer to the peak of 53 percent of 24 years ago. Some 39 percent of soybeans now fall under those two categories, rising 2 percentage points for the second straight week and eclipsing the 1988 benchmark of 37 percent.

The nation's rangeland and pastures are faring even worse, with roughly three-fifths rated to be in poor to very poor shape -- the largest area thus affected in 18 years.

Friday's USDA report amplified the troubling picture painted a day earlier when the latest weekly U.S. Drought Monitor map showed that the drought conditions continue to worsen in Plains states, where production of corn and soybeans is key. That update showed that the expanse still gripped by extreme or exceptional drought -- the two worst classifications -- rose to 24.14 percent, up nearly 2 percentage points from the previous week.

Federal scientists say this July was the hottest on record, smoking out even the sweltering temperatures set in the Dust Bowl in the 1930s. The National Oceanic and Atmospheric Administration reported Wednesday that the first seven months of 2012 were the warmest on record while the stretch from August 2011 through July this year was the balmiest 12-month period the U.S. has experienced.